8/10/2019 REIT - Both Benefits and Costs

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PROPERTY

60today Friday Fe bruary 24, 2012

 tan Chin Keong

R ecent newspaper articles

have increasingly laid

blame on real estate invest-

ment trusts (REITs) for the

rising occupancy costs in retail

and industrial properties.

In fact, in my earlier ar-

ticle in this newspaper titled

“Hawker centres and REITs:

An inflation face-off?” (Nov 25,

REITs: Both benefits and costs

CoMMentary

2011), I also highlighted that

REITs, in their relentless pursuit

of superior shareholder returns,

have generally been very proac-

tive and efficient in raising the

rental rates of their investment

properties. This is in the best

interests of REIT shareholders;

unfortunately, it also results

in higher rental costs, which

eventually filter through to the

inflation basket.

However, while poten-

tially resulting in higher in-

flation, REITs also have their

benefits. And having followed

the Singapore REIT sector since

its birth in 2002, I feel it is my

responsibility to also highlight

such benefits.

First, the introduction of

REITs has provided a cost-ef-

fective way for investors, espe-

cially the retail investors, to gain

exposure in a pool of diversified

commercial or industrial prop-

erties. Before REITs were intro-

duced, ordinary investors were

largely shut out of commercial

and industrial real estate due

to the generally large amount

of capital involved. REITs have

helped to attract retail money

into these previously inacces-

sible property sectors, thus ex-

panding the investment options

of ordinary Singaporeans.

This, in turn, has boosted

the supply of commercial and

industrial properties in Singa-

pore. Even if REITs mainly pur-

chase existing buildings from

property developers, they ef-

fectively free up capital in the

property developers, who then

gain the incentive to build new

commercial and industrial

buildings. In fact, many property

developers who are large REIT

sponsors in Singapore, have

been recycling the capital they

generate from the sales of their

investment properties to their

sponsored REITs to build new

retail properties. This helps to

create a more vibrant

scene in Singapore.

even say REITs have

boost Singapore’s p

tourist and commer

Second, REITs a

improve the qualit

ing commercial and

buildings. Due to t

on shareholder retu

are normally very ac

hancing the premise

and services of their i

properties whenev

portunity arises. This

ed in better quality i

properties (especiall

malls) that are more

visit. For example, m

malls (such as Plaza

and IMM Building)

successfully refurb

enhanced by their RE

Last but not lea

gapore REIT sector

ated to provide an

high-yielding financ

ment for Singapore

vest their savings i

secure a steady inc

retirement. This is

important given Si

ageing society. The

developed well ove

decade with more tha

being listed currentl

investment opportu

different investmen

asset classes. In fac

gapore REIT sector i

the second-largest i

behind Japan, anoth

society.

Thus, like in m

tions, the case for

REITs is not a straig

one as it entails both

financial benefits a

guess the key questio

er Singapore as a soc

the social and financ

of REITs more than i

Tan Chin Keong

analyst at UBS W

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